BeyondVC » On Demandhttp://www.beyondvc.com
Ed Sim's blog on venture capital, technology, the markets, and life in a connected world...Mon, 21 Mar 2016 13:36:34 +0000en-UShourly1http://wordpress.org/?v=4.3.6Startups and financial models for SAAS companieshttp://www.beyondvc.com/2009/12/startups-and-financial-models-for-saas-companies.html
http://www.beyondvc.com/2009/12/startups-and-financial-models-for-saas-companies.html#commentsThu, 10 Dec 2009 07:11:12 +0000http://localhost/wp_beyond/?p=16The other day I met with an entrepreneur I was advising as he prepared to raise his next round of funding. In the meeting, he wanted me to narrow in and focus on his financial model. Financial models for startups are important from a big picture perspective, but I never like to get mired in the full details as things always change in the early stages. So first and foremost, I let him know that while it was nice to have a well thought out spreadsheet, that the most important thing was getting the product developed and the right team in place. I don't invest based on detailed spreadsheet models - getting comfortable with the team, the problem being solved, and the market opportunity are more important in the early days. Secondly, what is most important for me to understand is the expenses and what milestones will be achieved with this first round of funding and whether or not it would be suitable enough to raise the next round of financing. Finally from a big picture perspective, I like to understand the unit economics of the business - can this really scale, is the company capital efficient, and are there high or low gross margins. While the revenue model may change as well, I like to at least understand going into the investment that the entrepreneur's head is in the right place and that the economics work right from the start.

Given my experience with SAAS based companies like GoToMyPC (Citrix Online now) and LivePerson (Nasdaq: LPSN), we also spent some time discussing key financial metrics for SAAS businesses that he should pay attention to as he ramped up his business. Once again, no startup spreadsheet is going to accurately predict the future, but it is imperative to understand some of the key variables that will drive your business so you can prepare early on to have the right people in place and the right focus. In my mind some of these key variables include new bookings, growth of deferred revenue, churn rate, cost of acquiring new customers, and obviously cash. New bookings are a better indicator of sales growth for a SAAS company because typically contracts are signed for 1 year or more and the revenue is recognized monthly as the service is delivered. So if a SAAS company signed up $1.2mm in bookings for December, it may only recognize $120k each month. The remainder would go into deferred revenue. Another area that is quite important is churn rate. If your company churns or loses 5% of customers every month, then during the course of the year the company will have to replace a significant number of customers just to maintain status quo. What this tells a company is that they while focused on adding new customers, they also have to make sure customer satisfaction is up to snuff and that they keep their existing customers happy. Also if your cost of acquiring a new customer is high and breakeven is longer than the contract length, then your company will never be financially stable if you cannot keep your customers on board. Finally cash is an important metric for all startups - watching the burn rate and being proactive about it can keep you fighting through the lean times and prepared for growth. While many SAAS companies may collect cash monthly or quarterly, some collect annual fees by offering discounts by paying upfront. This is a great way for SAAS companies to keep the cash coming in earlier so they can use it to fuel growth.

]]>http://www.beyondvc.com/2009/12/startups-and-financial-models-for-saas-companies.html/feed3The Googlization of IThttp://www.beyondvc.com/2009/10/the-googlization-of-it.html
http://www.beyondvc.com/2009/10/the-googlization-of-it.html#commentsTue, 27 Oct 2009 15:55:08 +0000http://localhost/wp_beyond/?p=18Today I took a sales team from a portfolio company to meet with a couple of senior IT executives at a major retail company. Towards the end of the meeting, it started to become quite clear to me the effect that Google and the web has had on IT to date and where it was going. In an oversimplified way, it seems that there have been 3 distinct phases to how the web and Google have impacted the enterprise, first starting at the app layer and increasingly diving deeper into the core infrastructure.

Phase 1 - Consumerization of IT - all internal corporate users are consumers first and then employees second. we have all seen how consumers have gotten used to using browsers and SAAS-based applications and how successful startups have been able to provide web-based applications that users can pull into the enterprise environment starting at a department level rather than having to go out and sell and push technology into enterprises.

Phase 2 - Rise of open source - I would call Phase 2 the rise of open source software over the last 10 years - most of which is hardcore infrastructure type software such as databases, virtualization software, and the like. IT folks leveraged the web and Google not just for applications but also to download core software to help run their internal operations.

Phase 3 - Googlization of IT - have as much of your infrastructure as you can run like Google's - distributed, commodity-based, and in the cloud on a private basis.

Phase 1 and 2 are ongoing and Phase 3 is where I see a few of the more forward-thinking IT departments I have met with over the last few months going. I am not just talking about Google Apps (like email, etc) but about how companies can run their infrastructure internally like Google. If Google can deliver a number of highly scalable web-based apps by clustering commodity servers, then how can enterprises do the same for themselves. This is not about getting sucked into buzzwords on the cloud but really understanding the cost savings and performance benefits a company can get from transitioning some of their infrastructure to a Google-like model.

One company in my portfolio that is leading the charge in the data warehousing space is Greenplum. A customer can buy our data warehouse, cluster commodity servers like Google, and get petabyte scale and much better performance for less than the cost of maintenance of many existing solutions on the market today. In addition, large global companies can have these nodes accessible to anyone anywhere in what we call the Enterprise Data Cloud. One of our large customers said that data was a strategic weapon and that he wanted to make the cost of a running a new query zero. In today's world and without the enterprise data cloud initiative I can tell you that running new queries in a global organization is an expensive and time consuming task of replicating data, creating data marts, running the processes, etc that can take months to get going and days to run reports. Another company in which I am an angel investor is called Eucalyptus Systems whose tagline is your hardware, your data, your cloud. Eucalyptus is an open-source system for implementing on-premise private and hybrid clouds using the hardware and software infrastructure that is in place, without modification. Eucalyptus adds capabilities such as end-user customization, self-service provisioning, and legacy application support to data center virtualization features, making IT customer service easier, more fully featured, and less expensive. Yes there are public clouds like Amazon EC2 which is now also offering virtualized private clouds. But the reality is that many large IT organizations want to control their own data, find ways to make it more easily accessible to everyone, significantly reduce infrastructure costs, and be able to launch new apps or services quickly and cheaply. This is where I believe many IT organizations will be headed in the next 5 to 10 years creating private and hybrid clouds for existing and new applications, a phase which I call the Googlization of IT.

]]>http://www.beyondvc.com/2009/10/the-googlization-of-it.html/feed0I want it NOW, I want it REAL TIMEhttp://www.beyondvc.com/2009/06/i-want-it-now-i-want-it-real-time.html
http://www.beyondvc.com/2009/06/i-want-it-now-i-want-it-real-time.html#commentsTue, 16 Jun 2009 11:14:39 +0000http://localhost/wp_beyond/?p=25I was recently asked by a friend if he should get his son the new Nintendo DSi. This would be an upgrade from the current DS and also add the photo capability. As I thought about my own son's usage of the device, I said no. Once my son got an IPod Touch for music and now games, he never looked back. While he loves the music, the real reason is because of the App Store and ability to instantly download any game for free instantaneously. While the DSi does have a Wi-Fi connection, the IPod Touch is just so easy and frictionless. And as evidenced by the rise of the Internet and the ability to download movies, music, and games instantaneously, it got me thinking more and more about the fact that we live in the "Now" or "Real Time" Generation. Yes, it has been happening for awhile but we finally have the broadband speeds and ubiquitous connectivity that we craved for the last 10 years. We also have better pricing and better products to be able to download those movies and games anywhere and on any device. In addition, you can just see the rise of Twitter as another example of this new culture of real time. People no longer want to wait for anything any more - if you have something to say, say it on Twitter or Facebook. Products and friends are just a click away.

Sure, we can clearly see the impact of the Now Generation on consumers and new web applications. A substitue product or application is just a click away. If you don't like the user interface, if the product loads too slowly, or if the registration process is too burdensome, you can do another Google search and instantly find a substitute. But what does it mean for the enterprise, for the corporate IT professional and startups selling into these companies. I have always believed that the old way of selling enterprise software products with expensive sales forces and complicated installations is dying. Buyers no longer want you to push software that they may or may not need. They are empowered and can easily do their own Google search and download open source software or fill out a short registration form to trial a web-based app. They, like my own son and his friends, are increasingly seeking instant gratification. They are not just consumers but prosumers who are pulling new products into their departments and potentially into their enterprise. I wrote about this instant gratification in 2006 and it is happening faster than ever. The kids who were in college 5 years ago are the very same ones in the IT department tasked with coding new products. They are used to doing more for themselves, doing their own research, and being able to trial new applications in real time. If you are an entrepreneur selling into an enterprise and don't see this trend now, you will be toast in the future.

]]>http://www.beyondvc.com/2009/06/i-want-it-now-i-want-it-real-time.html/feed1Pioneers get arrows in their backshttp://www.beyondvc.com/2009/04/pioneers-get-arrows-in-their-backs.html
http://www.beyondvc.com/2009/04/pioneers-get-arrows-in-their-backs.html#commentsWed, 29 Apr 2009 15:21:38 +0000http://localhost/wp_beyond/?p=28Pioneers get arrows in their backs - I have experienced it firsthand from an active investor's viewpoint and written about it in the past. Being early in a market is great but being too early can be deadly. Just like the settlers in the westward migration, entrepreneurs who are too early will get arrows in their back. It doesn't matter if you have a rock star CEO (Bill Coleman who founded BEA) and $100mm of funding from some great investors. If you are too early and have to spend lots of money educating a market and get engaged in long protracted sales cycles and pilots, you are not going to be able to spend your way to success.

That is what it seems like is happening to Cassat Software. Forbes has an article about Cassat nearing the end. On the surface it seems like the company was built for the right place at the right time helping enterprises save tons of money and run their internal data center like a cloud. However the first funding went in 6 years ago and has totaled around $100mm since then. Here is a quote from their founder and CEO:

For many years, Coleman acted as something of a prophet for cheap computing via the cloud, but he also thought it would mean a sharp drop in pricing with which the big companies would not be able to compete.

"The big guys copied my story," says Coleman. Cassatt, he adds, was upended by a slowing economy and by customers skittish about closing big orders or changing existing ways.

"What frustrates me is my own naivete," Coleman told Forbes. "I thought I could give companies something radical that had a proven return on investment, and they would be willing to change all their companies' computer policies and procedures to get that. Right now, it's hard to get people to get beyond proof-of-concept tests or a data center energy analysis."

He will be right eventually but will not have a lot to show for it. A couple points to make - raising too much money too early can be harmful as it puts huge expectations on a company before it has proven itself and selling million dollar plus licenses into enterprises has gone the way of the dinosaur as only the biggest companies can afford to do this and it is extremely expensive to do. Remember some of my old posts about frictionless sales and leveraging the web for sales/marketing and inside sales? Having just participated as an angel in the recent Eucalyptus funding led by Benchmark, we are hoping to avoid this fate leveraging free download model which has generated over 14 thousand users, many of whom are corporate customers. In addition, we have signed partnerships and are bundled in the Sun cloud computing initiative and the new Ubuntu enterprise Linux release. Got to love leveraging partners and downloads to drive sales leads and sales.

]]>http://www.beyondvc.com/2009/04/pioneers-get-arrows-in-their-backs.html/feed6Hybrid clouds are cominghttp://www.beyondvc.com/2009/03/hybrid-clouds-are-coming.html
http://www.beyondvc.com/2009/03/hybrid-clouds-are-coming.html#commentsWed, 18 Mar 2009 08:31:42 +0000http://localhost/wp_beyond/?p=31Amazon has taken off with its cloud compute infrastructure but there still have been some limitations from an enterprise perspective. Mainly, some enterprises are concerned about keeping their data private, about reliability, and storage costs over time. Any enterprise looking at potentially leveraging the cloud would love to have a hybrid solution which allows them to manage their own internal cloud and then burst over to a public cloud for either automated failover, extra storage, or to port an application over after using an internal platform for development. Sun seems to get it as evidenced by their announcement today to offer their own cloud computing platform. Key here is that it will be interoperable with Amazon S3 and its platform.

"Sun anticipates that the cloud scene will feature many clouds, both public and private, that are interoperable and driven by different application types. Applications eyed for deployment on Sun Cloud include Web 2.0 applications, social networking systems, gaming applications, and anything that needs the scale of the Web, said Tucker. Departmental applications are envisioned as well.

"What we're introducing in New York here is we're talking about our public cloud," for developers, Tucker said. Sun has seen a lot of interest in cloud computing from enterprises, he said. "It’s getting very rapid uptake at least in the large enterprises today," said Tucker.

What is interesting is that their is a little known startup with great open source technology called Eucalyptus which is helping drive some of this initiative. Eucalyptus will be the software that will allow the Sun cloud to interoperate with other platforms and services. With this open source platform, companies can now deploy apps on their own cloud and use Amazon or other cloud services for high availabilty or extra storage without vendor lockin. Congratulations to Rich Wolski and team as they have made tremendous strides during the last 6 months. I was just with them in New York yesterday and believe they are on to something big.

]]>http://www.beyondvc.com/2009/03/hybrid-clouds-are-coming.html/feed5Cloud computing for SMBshttp://www.beyondvc.com/2008/11/cloud-computing-for-smbs.html
http://www.beyondvc.com/2008/11/cloud-computing-for-smbs.html#commentsMon, 17 Nov 2008 12:01:03 +0000http://localhost/wp_beyond/?p=40Cloud this, Cloud that - the word cloud is clearly an overhyped word and reminds me of the beginning of the hype around hosted models and ASPs (application service providers) in the late 90s and the term SAAS today. Anyway, as I look at announcement after announcement released about cloud computing platforms, one thing is pretty clear to me from an investment perspective. First, I am not going to invest in the next hot cloud computing infrastructure service that will compete against Amazon, Rackspace, Microsoft, and every other large tech vendor in the world. This is suicide and far from capital efficient. Secondly, while everyone looks in the consumer space, I want to look at how software companies can deploy new enterprise-based applications in the cloud, particularly for small/medium sized businesses. In other words, show me the arms merchants with a recurring revenue model and frictionless sale and I will definitely be interested.

Some of the companies that fit this parameter include Rightscale (founded by Thorsten von Eicken, a cofounder of former portfolio company GoToMyPC) and one that I am looking at in the email archiving and compliance space which has a number of OEM partners reselling its service. Rightscale is an on-ramp to Amazon EC2 and other clouds and provides automate systems management. It kind of reminds me of a next generation Tivoli or Openview. The beauty is that the whole sales cycle is quite frictionless and all web-based which means an oppotunity to scale quickly. There are a number of other recent players I have seen including one for BI in the cloud (not exactly sure what the killer app here is yet) and many others. Of course the trick here is not to get enamored with the word "cloud" but to really understand the business problem that is being solved and why leveraging a cloud computing platform offers better economics, scale, and competitive advantages. As I dig deeper into some of these companies, it is clear to me that software purpose-built from the ground up to live in a cloud has a huge advantage since it is hard to retrofit off-the-shelf software to leverage all of the benefits offered by Amazon, Rackspace, and the like. Secondly, many of the better companies have built some slick tools and services to solve difficult problems like how to make customers feel like they have their own privated, dedicated systems while still keeping costs low. Finally, from a go-to-market perspective, a number of the companies I have spoken with have not gotten the question of whether or not they could scale as they quickly point to their backend provider and move to the next objection. So, if you have an application targeted at the SMB market that is taking advantage of cloud economics, please feel free to contact me.

]]>http://www.beyondvc.com/2008/11/cloud-computing-for-smbs.html/feed12Selling to large enterprises costs big dollars no matter how frictionless your sale ishttp://www.beyondvc.com/2008/08/selling-to-larg.html
http://www.beyondvc.com/2008/08/selling-to-larg.html#commentsTue, 26 Aug 2008 11:32:14 +0000http://localhost/wp_beyond/?p=46I have written a number of times about frictionless sales and how on-demand companies have a huge opportunity to reduce their sales and marketing costs and subsequently scale their business more efficiently. Here is an excerpt from a prior post:

Frictionless sales means reducing the pain for customers to adopt and use a service/product and consequently reducing the cost of sales and marketing to get a customer and generate revenue. As I mention in an earlier post, "The less friction you have in your sales and delivery model, the easier it is to scale. The easier it is to scale the faster and more efficiently you can grow." The lowest friction sale can be a user clicking on a web page and the content owner getting paid for it. The highest friction sale is spending lots of money on marketing and trade shows and having a large, direct sales force of expensive reps pounding the pavement for months trying to close a large deal with an enterprise customer. Follow that with a 3 month implementation process to get the customer happy. There are various grades of friction between these two extreme points like open source business models, software as a service, and reseller/OEM-type models as other forms of packaging and delivering a product/service. And of course, each of these models requires a different methodology and way of marketing and selling to a customer. Ultimately what you want is sales leverage where every $1 you spend on sales and marketing equals multiples of that in terms of revenue.

The perception that it is much easier to scale definitely holds true if you are selling to consumers, small businesses, and workgroups within large organizations. However, it seems that many public on-demand vendors are feeling the pressure to deliver growth and ultimately need to feed the revenue machine by going after larger customers. And what many companies are learning is that no matter how on-demand your software is, if you are selling to huge enterprises you are going to have to spend huge dollars in sales and marketing. Sales cycles are long no matter how you slice it and even if there is no massive hardware and software installation, many large companies want to have their service customized and integrated, even lightly, with other systems. in other words, many of these high flying on-demand vendors are starting to look more like the old software companies they are trying to replace. As per a Wall Street Journal article today, it seems that many of these public on-demand companies are finding out the hard way that no matter how frictionless your sales process is, the bigger the company you sell to, the more it is going to cost you.

There is nothing to install, so workers can start using online software without the aid of the tech department. That makes it easier for companies that sell online software to get into a business than their on-premises competitors.

Seizing on this, investors bought into online-software companies in a big way. During the first 10 months of 2007, shares of 15 online-software companies tracked by Thomas Weisel Partners increased in value 61%. Since then, however, these companies have lost about a third of their value.

Wall Street has realized that it isn’t enough to simply offer online software—you have to have a sales strategy that can make your offering a corporate standard. It is possible to get individuals, project teams or small businesses to buy online software through word-of-mouth marketing, but it is hard to make money from these groups—at least the kind of money necessary to become a billion-dollar company.

In order to get there, they can’t operate like an Internet start-up, letting their technology spread virally as end users hear about it. They need to sell to the same executives and information-technology professionals who made purchasing decisions before online software was an option. Businesses have a lot riding on the decision to use one product or another. And while having pockets of workers advocate for a particular piece of software is a plus, the execs who sign the big checks still want to see demos, vet the seller and do all the things they have always done when they buy software.

So if you are an on-demand vendor, either stick to your focus of scaling with SMBs and consumers which requires a completely different sales and marketing approach more rooted in traditional online budgets and telesales or be prepared to spend some real dollars if you truly want to go after the big guys.

]]>http://www.beyondvc.com/2008/08/selling-to-larg.html/feed4Need homework help – try Tutor.comhttp://www.beyondvc.com/2008/02/need-homework-h.html
http://www.beyondvc.com/2008/02/need-homework-h.html#commentsFri, 01 Feb 2008 13:25:13 +0000http://localhost/wp_beyond/?p=69I got an email from George Cigale, CEO of Tutor.com, yesterday to check out the New York Times article on his company's service (full disclosure-my fund is an investor in Tutor.com and my partner Dan is on the board). The article, "On Demand, On Time and for a Fee, an Army of Tutors Appears," highlights Michelle Slatalla's experience with Tutor.com's service where her two daughters were able to get instant homework help by going to Tutor.com, logging in, and clicking on their grade level and subject matter to find a qualified instructor. Thankfully Michelle had a pretty positive experience as we have had time to hone the service and continue to find great tutors as we currently complete thousands of sessions each day. Anyway, next time your child asks you for help on Algebra, you may want to visit Tutor.com and try another method. From a thematic point of view, this is another example of how companies can leverage the power of the Internet to offer an on-demand service leveraging a distributed and free agent workforce. I just love those types of models! ]]>http://www.beyondvc.com/2008/02/need-homework-h.html/feed0Do you believe in the Red Shift theory?http://www.beyondvc.com/2007/09/do-you-believe.html
http://www.beyondvc.com/2007/09/do-you-believe.html#commentsWed, 05 Sep 2007 11:11:23 +0000http://localhost/wp_beyond/?p=95The first time I heard the term Red Shift was from my portfolio company, Greenplum. Greenplum has used red shift to characterize the nature of the existing database market where exponential data growth driven by network computing and internet applications have outstripped the capacity of existing mainstream vendors. Hence, a new approach was needed (our database software running on commodity clusters) which would allow companies to load and query terabytes of data at 10-100x performance and scale over traditional vendors. Ok-enough of the sales pitch. Moving on, it is clear that red shift data requirements are only a fraction of what's necessary to meet this exponential growth as it will put tremendous strain on the existing IT infrastructure consuming ever-increasing amounts of CPU cycles, energy, storage, and more. If you want to read more about this red shift theory, I suggest checking out a great article by Richard Martin in Information Week. Martin neatly summarizes Red Shift as defined by Sun's Greg Papadopoulos to be:

Red-shift companies tend to be Web 2.0 focused like YouTube and MySpace, or big financial, energy, or pharmaceutical companies

Those companies, Sun CTO Greg Papadopoulos says, will experience similarly high levels of growth in users, revenue, etc., while blue-shift companies will grow relative to GDP

Along with the cost of powering and cooling in-house data centers, the red shift is driving a surge in utility computing and software as a service

Based on my experience with both consumer Internet and companies selling infrastructure, I can say that this all feels right to me. It is also no wonder that virtualization which helps IT consolidate servers and increase capacity utilization and utility computing are top of mind again. Think about Amazon's S3 and EC2 which I have written about before as utility storage and processing for the masses. I am definitely meeting more and more startups which are starting to offload some of their computing requirements to these services. And of course, while Greg Papadopoulos is pushing this vision of the red shift, he has put Sun in a great spot to execute on this with new platforms and ways of keeping up with this exponential demand. The only question as Mark Anderson points out in the article is not if there will be an exponential increase in servers sold but how many of them will be Sun servers running Solaris versus open systems. Either way, it looks like the stock market has been voting with its feet as Sun has been performing quite well as of late. And as a VC whether you believe in the red shift or not, we would all like to find companies experiencing hypergrowth where one of the main uses of capital will be for scaling the infrastructure to meet demand. That is what I call a good problem to have.

]]>http://www.beyondvc.com/2007/09/do-you-believe.html/feed2Do it yourself (DIY) in the enterprise (continued)http://www.beyondvc.com/2007/02/do_it_yourself_.html
http://www.beyondvc.com/2007/02/do_it_yourself_.html#commentsWed, 28 Feb 2007 17:22:57 +0000http://localhost/wp_beyond/?p=124Last year I wrote about the newfound productivity of the prosumer, the consumer who is bringing technologies into the workplace in a DIY (do it yourself) fashion. If IT can't or won't get something done, users can simply check the Internet for the latest web-based service or software download to help them solve their problem. In this month's CIO Magazine which landed on my desk somehow, the cover article is titled "Users Who Know Too Much and the CIOs Who Fear Them." The subtitle is "They're smart, productive and using IT you didn't provide. How to manage the modern user." I think we are at the very beginning stages now of IT's recognition that the world is changing and like Jeff Nolan says the balance on the continuum of systems and people should move more towards a people-centric vision of technology. What do the people want and how do we provide them the ability to get things done while at the same time balancing our need to keep a safe and secure environment? Sometimes these issues are directly competing with one another. It is still quite early in the CIO's recognition of a user-centric IT world but the fact that CIO magazine is focusing on this means that it is becoming more critical to its readers.

Over the next couple of years, it will be interesting to watch how the battle between top-down, conservative IT and bottom-up DIY employees gets resolved. IT wants control, security, and compliance while users just want to get things done. As the article advocates, the smart CIOs will figure out how to balance the needs of their users and the role of IT.

This will require CIOs to reexamine the way they relate to users and to come to terms with the fact that their IT department will no longer be the exclusive provider of technology within an organization. This, says Smith (Gartner analyst) is the only way to stay relevant and responsive. CIOs who ignore the benefits of consumer IT, who wage war against the shadow IT department, will be viewed as obstructionist, not to mention out of touch. And once that happens, they will be ignored and any semblance of control will fly out the window.

Whether or not CIOs get it, does not really concern me as the nature of sales for many of these DIY apps and services should be focused around the end user vs. centralized IT. Given this, the sale should be much different, less costly, and with much less friction. If a user wants to track his sales force productivity, they can go online and sign up for Salesforce.com or create their own through a SugarCRM download. There is no on-site installation as the web helps deliver the product efficiently. From a sales perspective, as these companies grow over time, much of their sales can be done over the telephone or through a WebX or GoToMeeting session with only the large accounts reserved for an expensive direct sales rep. Given this bottom-up, web-based model of selling and delivering software, it will be interesting to see how the incumbent vendors respond. For example will users adopt a collaboarion platform from IBM that IT has pushed down on them or would it be better for CIOs to figure out what their workers are using and standardize on that? Does this mean that the smarter incumbent software vendors look to buy startups that already have bottom-up traction versus building their technology from scratch? As I was writing this post, I just noticed that IBM just signed a deal to pipe Google gadgets through its Websphere portal.

"These sites are not just valuable to consumers. Businesses want the same content. Why would we keep these two universes separate?" said Larry Bowden, vice president of the IBM Lotus division for portals and Web services.

While Internet access, and thereby Google Gadgets, may be easily available to consumers, many businesses restrict access to the latest Web applications for security reasons, to make network management easier and to limit employee distractions.

By allowing Google Gadgets to work within its WebSphere Portal, IBM is making it easier for companies to give employees access to popular Web applications while keeping control over how they are used. Companies can decide which Google Gadgets they can see.

"The end user decides: We no longer need to go off and call a technician," Bowden said. "The power has been turned over to the people who know best. You know best."

It looks like IBM gets it and is trying to help its IT customers strike the delicate balance between control and giving users what they want. All I can say is that the intersection of the enterprise and the web-based platform will be an interesting space to watch over the next few years and it is clearly heating up.

]]>http://www.beyondvc.com/2007/02/do_it_yourself_.html/feed4GOffice – what’s the big deal?http://www.beyondvc.com/2007/02/goffice_continu.html
http://www.beyondvc.com/2007/02/goffice_continu.html#commentsFri, 23 Feb 2007 10:53:06 +0000http://localhost/wp_beyond/?p=125It is not a surprise that Google officially launched Google Apps Premier which is a bundled package of their hosted offerings for word processing, spreadsheets, email, calendaring, and instant messaging. I wrote about this in the fall of 2004 when Adam Bosworth joined Google from Microsoft and wrote a lengthy blog post on the web-based platform. Google has clearly been executing on this vision over the last two years, but I do not see this as a Microsoft killer. While I am huge fan of web-based software and data in the cloud, there is one big problem - you always need to be connected. For the last two weeks I have been living in a web-based world as I had to send my laptop back for service. While I could do everything I needed to do, I must admit I was about 60% as productive as usual. This lack of productivity partly came from clicking and waiting in my web-based Exchange offering and partly due to lots of travel which meant I could do absolutely nothing on the airplane. What I see Google Apps doing is breaking the market into two segments - those who want to easily share and collaborate information with others in a lightweight manner and the power users who live, eat, and breathe in their productivity applications. I certainly see myself using Google Spreadsheets to post some information on my blog but it will be a long time, before I even think about replacing my desktop productivity applications. In the meantime all of this is great for consumers as competition is forcing Microsoft to rethink their whole application strategy by incorporating a SAAS component into most of their offerings. I can only assume that Microsoft will get better at this and make it easier for their users to work online and offline in a seamless manner. In my web-based world, disconnected applications with an online component will rule. Let's see what the Adobe Apollo platform brings to the world later this year.]]>http://www.beyondvc.com/2007/02/goffice_continu.html/feed11Small business startup kit for 2007 – mostly free!http://www.beyondvc.com/2006/12/small_business_.html
http://www.beyondvc.com/2006/12/small_business_.html#commentsFri, 22 Dec 2006 14:19:55 +0000http://localhost/wp_beyond/?p=140A friend of mine called me the other day to ask for advice on what services (email, voice, apps) he should use to run his business with the caveat being that he wanted to spend as little upfront capital as possible and also have minimal ongoing maintenance headaches. As I started thinking about his question, I remember what it was like setting up our office in 1998 and the headaches and cost of buying a Nortel phone system and phones and hiring a Microsoft networking expert to get our office set up for file sharing, back up, and email. What a nightmare! What was even worse was that we had to have this guy come in at least once a month for general maintenance. So when we moved in the beginning of 2004, I vowed to outsource as much as possible. In the end, here is what we did:

1. Exchange server - USA.net - pay monthly based on number of mailboxes and mailbox size and eliminates the headache of ongoing maintenance and backup. also can add mobile devices like Blackberry, Good-enabled, etc. and easily provision without cap x.2. Voice-outsourced VOIP, we have a direct pipe to a local provider, we leased some Cisco phones, and once again no upfront cap x and lots of great functionality, we pay a base monthly fee for unlimited calling.3. Security - we bought some Cisco gear but have a small IT firm as our managed service provider remotely monitoring and updating the software with the latest patches and release.4. Connectivity = We are networked internally on Windows and have a shared drive where we can access files. In addition, we have a VPN for remote access to this share drive.5. Productivity - Microsoft Office

Going back to my friend's question, if I could set up my office now, here is what I would do:

1. Exchange server - I hate exchange and I would bail on this as soon as I can. Instead, I would get all of my email and calendaring functionality through Google Apps for your domain - it is free and provides 2 gb of email, integrated calendaring with your email, chat and simple voice chat, and an ability to create simple web pages. Yes this is basic but it is easy. In addition, I expect a lot more to be offered once Jotspot is integrated along with some of the other basic Google Office apps such as word processing and spreadsheet functionality. My one big beef which is holding me back right now is the lack of simple syncing with wireless devices. There are some apps you can plug in to sync Google calendar but they still need some work. 2. Voice - if I want something more robust I would get a Fonality PBXtra for $995. If you choose to go the really simple route, the PC-only VOIP providers of today have come a long way since 2004. I am partial to Gizmo Project (wait for our new version which will be accessible through a browser - also, full disclosure, I am on the board) but Skype and other services can once again offer you pretty decent voice communications and functionality like the ability to buy your own phone number, call forwarding, and dual ringing on your computer or cell phone.3. Security - not as important if your files are hosted offline and backed up remotely (try xdrive which is free for 5 gb or box.net (free for 1gb). 4. Connectivity - a simple wifi network in the office can get you simple file sharing without an IT professional's help. If you want to collaborate with remote workers, you can use a wiki like Jotspot or Socialtext or some of the shared storage services I mention above. As far as remote acccess, no VPN is needed as a simple GoToMyPc account ($19.95 per pc per month) or LogMeIn (free for base functionality) can get you the access that you need without the headaches and upfront cost of a VPN.5. Productivity-Microsoft Office but the online apps are getting better and in fact for collaboration or sharing would consider Google Office apps like spreadsheets and writely

What is amazing to me is how far and how fast we have come during the last 2 years. The big difference is that the functionality is even better and so is the price - mostly free! Given this, I wonder what we will be looking at 2 years from now? Yes, one problem is that all of the solutions I list above are dependent on having an Internet connection. What if I am not online and need access to my calendar or some office documents? Since this is a pretty clear problem, my prediction for 2007 is that online apps get better offline client like functionality. Maybe it will be the new Adobe Apollo platform that makes it happen for us? What is clear is that one of the benefits of SAAS for developers is that they don't have to code in multiple platforms. Once you start diving into the murky world of multiple operating systems and developing clients for Windows, Mac, and Linux, it can quickly become quite messy and resource intensive. That is why I also see 2007 as the year that offline apps become big as the Apollo platform is released and allows web developers to build an application on one platform that can be deployed cross operating system. Also keep an eye out for Microsoft's WPF/e (windows presentation framework everywhere see an earlier post for more info on wpf). This is a big deal and will help SAAS-based apps continue its upward trajectory and spread from consumers to SMBs and even further into enterprises. As an example, take a look at Jeff Nolan's recent post about how frustrated he is with Exchange and how GMail provides a nice alternative. With the ability to get my whole office set up with a few clicks, it is no wonder that Microsoft is running scared and embracing SAAS rather than fighting it.

]]>http://www.beyondvc.com/2006/12/small_business_.html/feed11Is the bar lower for a tech IPO?http://www.beyondvc.com/2006/11/are_tech_ipos_b.html
http://www.beyondvc.com/2006/11/are_tech_ipos_b.html#commentsFri, 17 Nov 2006 08:34:00 +0000http://localhost/wp_beyond/?p=155I am not sure if you saw the news, but Salary.com recently filed for an IPO to raise up to $50 million. On the book is Thomas Weisel Partners, William Blair, Needham, Pacific Crest, and Wachovia. According to the S-1 filing:

In addition to our on-demand enterprise software offerings, we also provide a series of applications through our website, which allows us to deliver salary management comparison and analysis tools to individuals and small businesses on a cost-effective, real-time basis...

We offer our solutions principally on an annual or multi-year subscription basis. Our direct sales group markets and sells our solutions primarily using the telephone and web-based demonstrations. From the introduction of our solutions in 2000 through September 30, 2006, our enterprise subscriber base has grown to approximately 1,500 companies who spend from $2,000 to more than $100,000 annually, including companies such as Wal-Mart, Home Depot, Procter & Gamble, Merrill Lynch, UPS and Cisco Systems. We also sell to both individual consumers and smaller businesses through our Salary.com website.

From April 2001 through June 30, 2006, we achieved 21 consecutive quarters of revenue growth. During the years ended March 31, 2004, 2005 and 2006, we achieved positive operating cash flows of $0.3 million, $0.9 million and $1.8 million, respectively, and used $0.7 million of cash in the three months ended June 30, 2006. During these periods, we have consistently incurred operating losses, including $0.8 million for 2004, $1.9 million for 2005, $3.0 million for 2006 and $0.8 million for the three months ended June 30, 2006. As of June 30, 2006, we had an accumulated deficit of $21.8 million.

I would usually put IPO filings in the nonevent category but as I dug deeper into the company and financial performance, it did raise some interesting questions for me. First and foremost, the traditional rule of thumb that most investment bankers have quoted me in the last couple of years was that in order to go public a company needs to have an annual run-rate of $40-50mm of revenue and a couple quarters of profitability. While the Salary.com numbers are strong (read the S-1 here), they are not close to those metrics. In fact, during the last 3 fiscal years for the company, it did $6.4mm, $10mm, and then $15mm in revenue. The trailing twelve month number is closer to $20mm in revenue. While slightly cash flow positive, the company is not GAAP profitable. So the natural question for me is to ask whether or not the barrier for a private company to go public is much lower today and whether or not this will signal an ongoing trend in the future. This is obviously relevant for a number of reasons. Outside of a few outliers, most of the returns generated for VCs have been from M&A transactions. If the IPO markets open up again, it would give investors and entrepreneurs another option to create value. Using a back of the napkin analysis, most companies sell about 20% of their stock to the public, so one could assume that Salary.com is valued at around $200mm pre-money implying a 10x multiple on trailing twelve month revenue. I must say that sounds quite appealing. Anyway, we should all watch this company as it goes through its paces because if it does well, it could open the door for plenty of other companies like it. There must clearly be an appetite from the institutional money managers who are looking for more upside from rapidly growing small cap companies. By the way, one other interesting point about Salary.com is that is an on-demand application play with some web-based advertising thrown into the mix. It is also mostly a subscription-based business which means it has a highly predictable revenue stream which is great for forecasting future performance. Finally, the company only raised $5mm of VC dollars so it is highly capital efficient. If you read from the S-1 above, most of the sales are generated through the telephone or through web-based demos, all of the traits for a nice frictionless sale and great business model.

]]>http://www.beyondvc.com/2006/11/are_tech_ipos_b.html/feed7Utility computing for the web and startupshttp://www.beyondvc.com/2006/11/utility_computi.html
http://www.beyondvc.com/2006/11/utility_computi.html#commentsFri, 03 Nov 2006 15:15:35 +0000http://localhost/wp_beyond/?p=159There is a great BusinessWeek article outlining Amazon's ambition to be a utility for web businesses. This reminds me of a conversation I had last month with a founder and former CTO of one our of our prior portfolio companies who said his goal was to have a highly successful SAAS play with 1 operations guy instead of 20. When I asked him how he would do it, he quite simply said Amazon - Amazon EC2 (Elastic Compute Cloud) and Amazon S3 for storage. Sure, I had heard about this before when Amazon launched it during the summer, but what really got me thinking was that here was a guy who had been there and done it - scaled a SAAS business to incredible numbers and he had been playing around with Amazon's infrastructure and was willing to offload a majority of his new startup's business on the Amazon infrastructure. When we talk about the commoditization of technology and how cheap it is to launch a new business on the web, we think open source and commodity servers. Now think about being able to launch a new web-based business and only paying for what you use. If it takes you awhile to scale you don't have to burn alot of capital upfront and only pay for minimal usage. If you are hugely successful, then you don't get caught with your pants down because you have the opportunity to quickly load a few more virtualized images on the Amazon EC2 infrastructure and pay more for that usage - bandwidth, storage, and compute time. Think about it - the upfront cost of starting a new web-based business if you went the Amazon route (when it is ready for primetime) has been driven down another order of magnitude as you can get started with little to no capital expenditures. The numbers are pretty incredible too - $0.15c per GB per month for storage or $150 per terabyte per month, $0.20c per GB for bandwidth, and the use of a pretty standard server (1.7Ghz x86 processor, 1.75GB of RAM, 160GB of local disk, and 250Mb/s of network bandwidth) for $0.10c per hour or $72 per server per month. Not too bad when you think that you can scale up or scale down pretty easily. It will be interesting to see how many startups look to use the Amazon infrastructure after it gets more publicized at the Web 2.0 conference. As a startup, your job is to allocate your scarce resources as efficiently as possible - time and money. If you can stretch either of these and give your company more of an opportunity to hit critical milestones or get better product out the door, then it is a huge win for you to spend your dollars on making that happen, rather than on capital equipment.]]>http://www.beyondvc.com/2006/11/utility_computi.html/feed2Revolutionary technology with evolutionary implementationhttp://www.beyondvc.com/2006/10/i_was_riding_on.html
http://www.beyondvc.com/2006/10/i_was_riding_on.html#commentsThu, 05 Oct 2006 21:28:36 +0000http://localhost/wp_beyond/?p=172I was riding on the train this morning and was talking to a friend about one of my fund's portfolio companies. She mentioned that the management team had done a great job during a recent sales presentation because instead of going for the "rip and replace" strategy, they went with the "co-exist" philosophy. Too often, entrepreneurs can get too enamored with their own technology and forget that the customer may not need every feature that you are offering today. In fact, while revolutionary technology and vision is great, what the customer may want is an evolutionary approach to implementation. What I am talking about here is reducing the friction in your sales process (See an earlier post on frictionless sales). Convincing a customer that your technology or product can coexist with an existing investment is a much lower barrier to sales than convincing them to "rip and replace" or "forklift upgrade" a significant prior investment. The sales prospect will have a hard enough time buying a product/service from an unproven startup, let alone ripping out an existing investment from a safe choice, a much larger public vendor. Once you land the customer, you will always have the chance to expand your footprint. That is why I continue to be enamored with SAAS and downloadable software because I believe that it is inherently a more efficient and cost effective way of selling and delivering a product or service. Granted, most of the initial target market opportunities will be the small/medium business market but I still firmly believe that this market is untapped and offers great upside.]]>http://www.beyondvc.com/2006/10/i_was_riding_on.html/feed0Google and enterprise SAAShttp://www.beyondvc.com/2006/09/google_and_ente.html
http://www.beyondvc.com/2006/09/google_and_ente.html#commentsSat, 02 Sep 2006 10:00:01 +0000http://localhost/wp_beyond/?p=182There has been lots of discussion about Google going after Microsoft with a focus on collaborative office tools vs. siloed, desktop-oriented ones. I can definitely see a need for some of what Google has to offer particularly with the ease of use of unlocking data and analysis and sharing it with others. All that being said, I have a hard time viewing their offering as a replacement for Microsoft office. What I have always thought, however, is what Charlie Wood mentioned in his blog - that a partnership between Google and Salesforce.com could make sense . For more background, I suggest reading a recent Red Herring article and one of my posts from Oct 2004 about goffice and specifically about a Google/Salesforce partnership. My thinking has evolved over the last two years and while there may or may not be a partnership, I certainly envision a time in the future where Google offers an even lower end offering -think free, ad-supported hosted CRM and other simple ERP related apps for the SMB market. This would allow Google to leverage its strength - online distribution and a huge user community. Of course, customers and users will have to get over the data privacy issue but free and easy can be quite compelling. In addition as more users sign up, I could see Google offering APIs so that its own users could build custom templates for certain verticals ala Salesforce's community approach. As the widgetization of the web happens, think how easy it could be for a SMB to have a hosted web portal that is password protected and a number of widgets like a sales pipeline, presence and one click communication for the employees, and certain financials embedded in the page with a few simple clicks. All of the enterprise portal infrastructure like Epicentric that used to cost boatloads of money and take months to integrate can now be used by many a SMB as we move towards a one-click world. I am not saying that free and ad-supported SAAS apps will take over the world but Google will eventually do it and it will be interesting to see how the market reacts to it. Ok-enough said on that.]]>http://www.beyondvc.com/2006/09/google_and_ente.html/feed5Citrix Online – a SAAS powerhousehttp://www.beyondvc.com/2006/08/everyone_knows_.html
http://www.beyondvc.com/2006/08/everyone_knows_.html#commentsWed, 23 Aug 2006 23:13:22 +0000http://localhost/wp_beyond/?p=183Everyone knows that hindsight is 20/20. Back in 2003 when we were deciding whether or not to sell Expertcity (GoToMyPC and GoToMeeting) to Citrix or continue fighting the fight and attempt to take the company public 1 year later, it was quite a gut-wrenching decision. Ultimately we decided that the risk/reward ratio to sell at that time was better than going for the public offering. As it turns out, we all did quite well and it is great to see that a few years later that Expertcity (now known as Citrix Online) is continuing to drive the numbers that we believed we could do. When most people think of the poster children of SAAS, they think of Salesforce.com, WebX, and RIghtNow. As Phil Wainewright of ZDNet mentions in his blog, let's not forget about the powerhouse that is now Citrix Online. According to Phil Wainewright:

Acquired as Expertcity in February 2004, the Citrix Online division is an on-demand giant in its own right, with trailing twelve month (TTM) revenues of $121.6 million to June 30th this year. That makes it even bigger than the number 2 on-demand CRM vendor RightNow Technologies, which reported a TTM of $99.3 million for the same period, and more than a third the size of web conferencing leader WebEx, with a TTM of $343.7 million (for comparison, on-demand poster child salesforce.com posted $396.6 million TTM with its latest results).

Even more impressive is the fact that the company grew from $35mm in revenue from the end of 2003 to around $121mm in revenue 3 years later - not too shabby for an on-demand play going after the SMB market. In addition, at the time of the sale, the company had raised around $30mm in financing but still had $16mm on the balance sheet when the transaction was completed. So it is hard to argue that the SAAS model if done right can be capital efficient and offer tremendous growth opportunities. In my mind, there are two ways to look at SAAS offerings - vertical market applications or horizontal plays. Of course the challenge is that many vertical market app plays may not be big enough and the horizontal plays have probably been done already and are quite competitive. All that being said, I am still quite interested in looking at companies offering a SAAS platform for Prosumers and SMBs. If you have any of these types of companies that you want to show me, I am all ears. I love the model and numbers like this show that the SMB market is really ready for these types of offerings. As Brett Caine, head of Citrix Online says:

"Companies such as Citrix Online and salesforce.com and lots of others are starting to demonstrate in a very real way that companies of all sizes are able to use services to meet their needs in a cost-effective manner," Caine told me. "I think SMB has fully embraced the services model. There's no doubt about that. Companies of all sizes have started to seriously embrace the software-as-a-service model."

I know I am preaching to the choir as none of this is new, but I must admit that the growth is pretty impressive. As you know, SAAS will only get stronger as broadband penetration increases, as our wireless devices gain more processing power and better connectivity, and as the tools to access, share, and deliver timely data get even more powerful and easier to implement (think AJAX, enterprise mashups, lightweight integration with other apps, RSS for simple data delivery).

Going back to the earlier point on deciding to hold and go public or to sell at that time, with perfect information it is easy to conclude that we should have held on to the company and continued building it up. However the decision is not that easy as there was lots of uncertainy at the time - we were only a two trick pony at the time and had not launched GoToMeeting and did not know how successful it would be, we did not have a sales channel to leverage like a Citrix, the IPO window was virtually shut for 2 years and we did not know when and how big you had to be for it to open (Google was one of the few Internet companies to go out in 2004), our growth rate was slowing while our subscriber churn was slowly increasing from just the remote access product, and the price was quite attractive. Once again you can always question your decisions looking back with perfect knowledge but I can honestly say that everyone still feels that we chose the right path given what we knew in 2003.

]]>http://www.beyondvc.com/2006/08/everyone_knows_.html/feed7Can Microsoft reinvent itself?http://www.beyondvc.com/2006/04/can_microsoft_r.html
http://www.beyondvc.com/2006/04/can_microsoft_r.html#commentsSat, 29 Apr 2006 18:58:00 +0000http://localhost/wp_beyond/?p=205Microsoft released its third quarter numbers the other day and while revenue growth was strong, the stock got hammered and dropped over 10%. Why? Microsoft plans on investing for the long term and putting another $2b into the Internet and other new technologies like the XBox. To sum it up, here is Rick Sherlund, Goldman Sachs' Software analyst, "It sounds like you're building a Google or building a Yahoo! inside the company."

Looking at the long term, I am quite excited about the prospects of all of this money coming into help grow the Internet sector and SaaS. First, having another big player push the concept of software as a service will only help further educate and soften the market, particularly business customers Secondly, this will mean that Microsoft will be aggressive with hiring and with acquisitions. I remember being at the Microsoft VC Summit a couple of years ago and hearing Steve Ballmer talk about his acquisition strategy. He would either do huge, billion dollar ones or look at acquisitions less than $20mm. That has been changing and will change rapidly with this renewed empahsis and focus. That only means good news for VCs and entrepreneurs. And as a VC, I wholeheartedly agree with Microsoft's CFO, Chris Lidell when he says, "Today, we believe we face the largest array of opportunities for growth and innovation the company has ever seen." I certainly feel the same way from a VC investment perspective.

Whether Microsoft succeeds or not is another story, but $2b invested in new technologies will go a long way towards solidifying their position. I would say that they did alright in 1995 when they decided to point their guns at Netscape to make sure the browser and Internet would not circumvent their monopoly on the desktop. The problem is that once they won the browser wars, Microsoft became satisfied, fat and happy. And as we all know, fat cats don't hunt. Others came around and outinnovated them - Firefox, Google, etc.

This is Round 2, which really started with Microsoft's purchase of Groove Networks and Ray Ozzie last year. To refresh your memory, I suggest reading Bill's email from October 2005 (also see the Ray Ozzie memo) where he leads the battle charge for the next generation web, the SaaS era.

Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities.....

However, to lead we need to do far more. The broad and rich foundation of the internet will unleash a "services wave" of applications and experiences available instantly over the internet to millions of users. Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services along with subscriptions and license fees. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.

And yes, it sounds alot like the memo Bill Gates wrote 10 years ago called the Internet Tidal Wave where he helped the big battleship called Microsoft reposition itself and point its guns at Netscape and others. Round 2 is no different from Round 1 but the stakes are higher and it will cost Microsoft oodles more cash this time to create a dent in this market. While we all know that memos often do not mean a whole lot, it is clear that Microsoft is quite serious as they are not afraid to piss off Wall Street and really put dollars to work for the long term position of the business. This will certainly be an interesting battle to watch over the next few years.

]]>http://www.beyondvc.com/2006/04/can_microsoft_r.html/feed3DIY in the Enterprisehttp://www.beyondvc.com/2006/04/web_as_platform.html
http://www.beyondvc.com/2006/04/web_as_platform.html#commentsThu, 27 Apr 2006 18:46:00 +0000http://localhost/wp_beyond/?p=206As I wrote last year, this "web as platform" gospel is starting to spread quickly from consumer to thoughts on the enterprise. In my mind, what has enabled this enterprise web phenonomenon has been two thoughts - lightweight and simple. Of course, lightweight and simple equals cheap and fast to implement. It is quite easy now for sophisticated users to find and download new software and run it themselves, for them to take simple scripts and tie together various web apps. We are quickly moving to a world where the end user on the edge can and has taken matters into his own hands rather than wait for IT to get something done for them. I call this the age of DIY (do it yourself) in the Enterprise. Why go through centralized IT and their processes when I can get something done with my own departmental budget? Linux, Jboss, and many of the open source opportunities started at the edges first before being brought into the centralized IT organization. As we all know, many new technologies are typically adopted by consumers and then pulled into the enterprise, not pushed. Amazon and other web apps started exposing their APIs and existed long before Salesforce.com.

Jeff Nolan points to an interesting post from John Hagel which highlights this changing enterprise world. What has been deemed as the agile enterprise driven by SOA has actually turned into anything but. The enterprise version of "lightweight" called SOA stands in stark contrast to the next generation web perspective of lightweight. As John correctly points out, enterprise lightweight in the form of SOA means plumbing, it means expensive, it means complex, it means lots of consultants, and it means lots of dollars. In contrast, next generation web technologies are easy, incremental, and driven by the edge and focused on people, not plumbing. While some of these next generation apps may not scale, there is clearly something that centralized IT can learn from the edge, their frustrated internal customer, that things can get done more quickly and more cheaply. As these two philosophies become more tightly coupled we will have some interesting opportunities to invest and make money. While not directly related to this SOA/web mashup discussion, one of the companies I have always found interesting is Splunk which is bringing a Google-like approach to network management. It is downloaded, driven by the edge user, and then pulled into the corporation from the bottom-up rather than the top-down. It stands in stark contrast to EMC's (Smarts) and IBM's (Micromuse) way of selling and using their respective products. There will be many more opportunities like this in the enterprise as enterpreneurs leverage user interfaces and technology from the consumer world in the enterprise. Of course, this means a whole new way of reaching customers (frictionless sales), selling to them, and supporting them but this is saved for another future post. The good news is that this new age of DIY in the Enterprise is not going away and is only getting stronger everyday. This also means the creation of many more disruptive enterprise software opportunities in the next 5 years. I agree with Jeff that this is an interesting area to watch and is beyond web mashups-rather, it is a philosophy enabled by all of this new technology, the philosophy of DIY in the Enterprise.]]>http://www.beyondvc.com/2006/04/web_as_platform.html/feed6Grid 2.0http://www.beyondvc.com/2006/03/grid_20.html
http://www.beyondvc.com/2006/03/grid_20.html#commentsThu, 23 Mar 2006 06:46:54 +0000http://localhost/wp_beyond/?p=212The hype cycle for grid computing started many years ago, and today it is mostly relegated to uses in bioinformatics, financial services, and 3d modeling (think crash testing, oil discovery, etc.). With yesterday's announcement, Sun is making this grid infrastructure available to anyone, anytime, and on demand at Network.com. As Jonathan Schwartz points out, consumer plays have been driving the surge behind massively scalable web services. Think Google, Yahoo, eBay. On the enterprise side think about any dozen of SaaS vendors like Salesforce, LivePerson and Rightnow. Rather than building your own infrastructure, imagine being able to create your app or service and deploy it with no wires to pull, no datacenter or storage infrastructure to manage, and all with the frictionless use of a credit card or PayPal? Pretty interesting thought? I haven't done the ROI analysis of $1 per CPU/hr (would love to see someone's rough cut at this including operating overhead) but this certainly levels the playing field for scalable backends. Imagine if you are a startup and can't get VC funding but have a killer app to deploy. Without any upfront capital expenditure, why not throw your service on the grid, pay per use, and build from there. That is a big concept, if it works. I believe this is the beginning, the very early beginning, of on-demand utility computing. With Microsoft moving behind software as a service, I see them deploying their own grid on their own stack on a rent per use basis. IBM will too. Competition will breed even better pricing and more opportunities for startups to focus on their apps and product and less about the back-end. I don't see startups rushing to deploy their whole infrastructure on the Sun grid right away, but it certainly is worth looking at and monitoring over time. What has changed from 10 years ago is that the focus is not on corporate computing (those guys still want their own grids) but as Jonathan so aptly points out, the long tail-the renegade departments who don't want to wait, the many startups that have new web services, etc. Ironically it was Sun that printed money from the VCs and startup community during the bubble-our checks went to a startup and they bought a Sun, Oracle, EMC backend. Well today the open source wave has killed that business and maybe this is another take for Sun to get at this capital. So how about that ROI analysis? ]]>http://www.beyondvc.com/2006/03/grid_20.html/feed7Web as platform-don’t forget the enterprisehttp://www.beyondvc.com/2005/12/web_as_platform-2.html
http://www.beyondvc.com/2005/12/web_as_platform-2.html#commentsWed, 21 Dec 2005 09:41:00 +0000http://localhost/wp_beyond/?p=226As I have written before, most of the talk about this next generation web has focused around consumer applications. I, however, have always believed that we should not forget the enterprise. This resurgence of web-based and loosely coupled applications has been driven by consumer-based innovation but there are many pockets of opportunities for the enterprise to take the best of the open web. As you look at the adoption of technologies in the enterprise much of it has been driven by a push-pull mentality where a vendor tries to sell enterprises something they don't necessarily need. On the other hand, with the growth of the web and broadband over the last five years, it has made it easier for vendors to leverage the pull-push mentality where a single user begins using a service or downloads some code, hacks away on it, and then pulls it into the enterprise. All of this make sense-consumers are web-savvy, broadband is everywhere making it an enjoyable experience, web-based services vs. client applications are driving growth in communications, sharing, storing, and collaboration---these same consumers also work at enterprises and "pull" some of their best practices and learning from the consumer world into their everyday working world. Let me give you an example.

A friend of mine heads up IT architecture at a large health care organization. One of the big initiatives is to reorient the company to focus on the consumer (sounds like they hired too many consultants). What that means for IT is how to do they integrate thousands of different databases to figure out all of the information about a particular doctor? Sure, some of this is an exercise in enterprise data integration but you have to remember that probably 75% of the real information is in the form of unstructured notes about the particular doctor. Think about how much data gets put into CRM systems which is not structured. So naturally he asked me about what was happening in the consumer blogosphere, about tagging technologies, about RSS and turning every application into a publishing system, and how he could potentially integrate this into his enterprise. The pain was large enough that he was looking for new and better ways, think loosely coupled ways to solve his problem.

This is just one example but you could easily think about that customer pain and extract it to a number of enterprises. Data and application integration continues to rank either #1 or #2 in every CIO spending survey but going for the expensive $1mm plus point to point integration methodologies is not the way to go. We just have to be creative and think about new ways to unleash the massive amounts of data in the enterprise to make the workers more productive. Think of the easy-to-use technology used in search, RSS as the new publish subscribe, and loosely coupled applications as a new wave to hit the enterprise in the next few years. Obviously all of the buzzword du jour technologies are just enabling technologies and it is incumbent upon the startup to find the problem, figure out the market potential, and understand how to sell it. It is quite early in the process but this next-generation web will have a huge impact in the enterprise as well as in the consumer space. It will just take some time because while many of the startup companies I speak with understand the opportunity in the enterprise, they are rightly focusing on the market opportunity with consumers first. Many of these entrepreneurs do not want to be seduced by the big dollar figure type deals that are out there knowing that it costs a lot of money to sell to the big boys and a whole different kind of support infrastructure. In addition, most enterprises are not ready for it yet, but trust me, the early adopters are already out there trying to figure out how to use wikis, RSS, and other successful consumer technologies in their shops. This means it is a good time to be looking so if you are an entrepreneur bringing some of these new technologies into the enterprise, let me know as I would like to speak with you to learn more.

]]>http://www.beyondvc.com/2005/12/web_as_platform-2.html/feed17Delivering software as a servicehttp://www.beyondvc.com/2004/11/_product_innova.html
http://www.beyondvc.com/2004/11/_product_innova.html#commentsThu, 04 Nov 2004 17:39:00 +0000http://localhost/wp_beyond/?p=295Adam Bosworth has an interesting post on the evolution of software and why software delivered as a service will be the business model of the future. As you know, I have always been interested in this trend since my first post in October 2003 and since I invested in a number of companies in 1998 and 1999 like LivePerson and Expertcity (GoToMyPC) that subscribed to the ASP business model. What I have learned and what Adam points out is that it comes down to the customer experience, making a product easier to use for a customer and evolving it as quickly as possible to meet the customer's needs. Software delivered as a service enables that and packaged software does not. In the time it takes Microsoft to deliver an application (went from 1 year to 5 years), a company delivering software as a service can deliver 60 iterations of its product. As Adam points out, "things that breed rapidly more quickly adopt through natural selection to a changing environment." I have never thought about software in evolutionary terms, but it certainly makes sense.

From an evolutionary perspective, the ASP business model is quite interesting to examine. While every piece of software should not and will not be delivered as a service, it is also quite clear that customers are tired of buying expensive software products with large upfront licenses, expensive hardware to purchase, manange, and maintain, followed by expensive professional services to get the product up and running. From this backdrop, it is easy to see why reducing complexity and simplifying technology for customers is a big driver to more rapid adoption of products. It is also easy to see why reducing complexity for the customer also helps reduce complexity for the vendor, lowering the friction to sell and deliver its product. This means a more capital efficient business model, one which would hopefully scale much quicker and cost less to build product, sell, and support customers. For the vendor, it makes it:

1. Easier to sell -shorter sales cycle-do not have to test extensively in a customer's environment -lends itself to telesales, can demo over phone and web, do not need a huge sales infrastructure to close deals (just need quota bearing reps without a huge staff of sales engineers and professional services guys to get the job done) -not a capital expense, usually sold as monthly or annual subscription which can many times be taken out of business budget as opposed to IT budget

2. Easier to install -no messy installation process, long testing process, or even waiting for hardware to be delivered to customer -can leave a customer and simply point them to a URL, train them over the phone, and get them up and running -all of this means that the business can scale rapidly

3. Cheaper to support -browser-based delivery and richer client interfaces like DHTML make it easy to use for the customer=less training=less customer support costs

4. Easier to integrate -standard APIs make it easier for software delivered as a service to integrate disparate systems -once again, reduces costs to deliver product to customers and also removes obstacles to getting customers

5. Cheaper to build -versus a few years ago, you now have much cheaper bandwidth, storage, servers, and software -think Linux, Intel boxes, cheap bandwidth, commodity software stacks, and smarter entrepreneurs changing the economics of building and delivering software as a service. -the economics speak for themselves

Given this, it seems to me that the ASP business model will only get more attractive with time. The ASP model makes it easier for vendors to sell and get customers up and running, lending itself to a more scalable and profitable business model. While I am not suggesting that every product will evolve this way, it is clear that simplicity rules. The ASP model is certainly one way of accomplishing simplicity. Appliances are another way. Packaged software with huge installation costs is not.

]]>http://www.beyondvc.com/2004/11/_product_innova.html/feed12Moving towards an on-demand worldhttp://www.beyondvc.com/2004/06/living_in_an_on.html
http://www.beyondvc.com/2004/06/living_in_an_on.html#commentsTue, 08 Jun 2004 11:05:07 +0000http://localhost/wp_beyond/?p=328I have always been a big believer of the hosted software or ASP (application service provider) model since we made our first investment in LivePerson in January 1999. One of our main competitors of that era was Kana, which at that time, did way better than LivePerson in terms of customers, revenue, and market capitalization. I wrote a post months ago showing how far Kana had fallen, and how LivePerson stuck with its hosted software model and finally hit profitability. Back in those days, the sales people at LivePerson and Kana were not only fighting a product battle but also a religious war of enterprise licenses versus the hosted model. And back then, many large enterprise customers were not willing to have their data hosted with an early stage, private company. The world is changing. Recently Kana announced its new "on-demand" model jumping on the hosted software bandwagon. Comments from the Kana release sound familiar-Siebel and others are increasingly talking about an "on-demand" model and customer flexibility. RightNow Technologies is another company in the CRM space that is delivering an "on-demand" solution, filing for an IPO last month. So why is the hosted or ASP model coming back strong from its near death experience during the Internet boom?

First and foremost, without customers there is no business. Today's customers are increasingly getting over data hosting concerns and are warming to the pricing and flexibility of subscription pricing and "on-demand" software. They are tired of the traditional enterprise license model, the lengthy implementation costs, paying for site licenses instead of on usage, and failed projects. Secondly, the cost side of the equation has changed dramatically. Hosted software vendors have learned from their erroneous ways and no longer need to build a data center for unlimited demand. Additionally, the pure costs of building a data center and using bandwidth have decreased significantly. Finally, the "on-demand" model is proven as a number of companies are already profitable-look at Salesforce.com, RightNow, and a couple from my portfolio, LivePerson and Expertcity (GoToMyPC).

Given these trends and the success of some of the companies above, it is clear that the new "on-demand" wave is just starting, and we will continue to see enterprise software companies like Kana move in this direction.

]]>http://www.beyondvc.com/2004/06/living_in_an_on.html/feed0VOIP/Messaging in 2004http://www.beyondvc.com/2004/01/voipmessaging_i.html
http://www.beyondvc.com/2004/01/voipmessaging_i.html#commentsTue, 06 Jan 2004 04:06:32 +0000http://localhost/wp_beyond/?p=381So I was at a New Year's party recently and overheard a great grandmother and grandmother waxing poetically about the wonders of Net2phone and VOIP. Both of them happened to also have children/grandchildren living abroad and the cost savings from using VOIP is tremendous. While the penetration of VOIP is still quite modest compared to the traditional phone system, it really got me thinking that 2004 could be the breakout year for the technology. As the New Year brings about predictions, I have included some from Voxilla regarding VOIP.

I am also currently researching the use of VOIP for my office. My team is in the processs of moving from Greenwich, CT and back to NYC, and I have unfortunately been designated CTO for the transition. My first goal was to outsource as much as possible, particularly our phone service and email requirements. For a small office, it really makes no sense to build and maintain Microsoft Exchange onsite or to buy a huge PBX. Regarding VOIP, I found a number of interesting companies that only serve businesses and host the VOIP infrastructure in their own data center where all of the phone equipment, gateways, and interconnects would be located. VOIP equipment is more expensive than PBX so this way we could reduce the upfront capital cost of equipment by sharing it with a number of other customers. All we would have to do is get a direct T1 connection to their data center and buy some VOIP-enabled phones. On the messaging side, I came across a handful (not alot) of companies that offer hosted Microsoft Exchange for monthly service fees.

In general, most of the VOIP business service providers and the hosted Microsoft Exchange companies seemed to be pretty small players. What I did look for and did not find was a company that offered small and medium sized businesses an outsourced messaging platform for both VOIP and email (sounds like a big opportunity for me having just researched the build/buy decision for my office). It would be great to get all of my messaging handled through one vendor where all I really had to do was plug and play to get my office up and running. AT&T recently announced that they will offer VOIP, and rumors are that they will soon introduce a hosted Microsoft Exchange play. Trust me, I am not going to be running to AT&T any time soon for my business needs. If any of you know of reliable companies that offer both of the above services, please do let me know. Until then, my office will be one of many that take the plunge into the world of VOIP in 2004.

]]>http://www.beyondvc.com/2004/01/voipmessaging_i.html/feed3Citrix buys GoToMyPc maker, Expertcity-great day for ASPshttp://www.beyondvc.com/2003/12/congratulations-2.html
http://www.beyondvc.com/2003/12/congratulations-2.html#commentsFri, 19 Dec 2003 01:39:05 +0000http://localhost/wp_beyond/?p=384Congratulations to Expertcity and Andreas, John, and Klaus. It has been great to work with you from a board level over the last 4 1/2 years. When the transaction closes, I look forward to writing a little more about how you were able to persevere through some tough times, launch new product, stay focused on leveraging the core screen sharing technology, and build a high growth business in a completely new market. Not only were you an early player in remote access, but you also were one of the first ASPs out there.

Expertcity is not the only ASP making headlines today. Salesforce.com filed to go public and raise $115mm. As I mention in an earlier posting about Google and IPOs, pre-bubble, it took companies 4-6 years from their first round of funding to IPO/acquisition. During the bubble it took 1-2 years. While I am excited about today's announcements and other recent deals like VMWare (bought by EMC) and Zonelabs (bought by Checkpoint), it is obvious that we have returned to a pre-bubble mentality and the companies that will be significantly rewarded are the ones that embody the philosophy of building real businesses with real revenue and cash flow. Well, isn't that just business 101? Yes, and this is great news as it is something we can all understand.

If you can't beat 'em, join 'em. On an earlier post, I commented on the return of the ASP model. It looks like Siebel is jumpstarting its efforts on the ASP side with its purchase of Upshot for $50mm + $20mm of earnout for 2003 and 2004. For an industry-changing hosted CRM play, that does not seem to be a hefty price. Let's see what happens with Salesforce.com when and if it goes public next year. Word has it that Salesforce.com is expecting to do $100mm of revenue in 2003 while being profitable for the last 2 quarters.

Speaking of CRM, it is interesting to look at 2 other eCRM players, Kana, an enterprise vendor, and LivePerson, an ASP. At one point in time, Kana was worth $5b to LivePerson's $300mm market cap. Today Kana is worth $105mm and LivePerson is at $135mm. The consensus analyst estimates have Kana losing ($0.54) this year and ($0.01) next year while LivePerson is forecasted to have EPS of $0.01 this year and $0.10 next year. It looks like profitability and operating leverage finally count. The luster of the ASP model seems to have returned to the public markets.

]]>http://www.beyondvc.com/2003/10/siebel_buys_ups.html/feed0A big week for VOIPhttp://www.beyondvc.com/2003/10/i_have_been_hel.html
http://www.beyondvc.com/2003/10/i_have_been_hel.html#commentsSun, 12 Oct 2003 22:12:20 +0000http://localhost/wp_beyond/?p=407I have been helping a friend of mine who is moving into town get access to local resources such as carpenters, painters, and restaurants. An email I received from him today had the standard list of questions on utilities but the one that surprised me most was, "Who is your cable provider and do they offer VOIP?" This was a surprise since he is not the most bleeding-edge technical guy. In my mind VOIP really hit the mainstream this week with this email, Thursday's Wall Street Journal (unfortunately subscription required) article about VOIP's threat to the Bell companies, and today's New York Times front page coverage in the Money and Business section.

While programs like Skype offer free P2P telephony over computers, services like Optimum voice offered through Cablevision and Vonage are the true groundbreakers that are bringing VOIP to the mainstream. Mainstream users do not want to be tied to their desks with computer headsets. With these services, customers can simply plug their phone into an adapter which converts analog signals to digital. There is no need to buy new equipment or even change how you use the telephone. Vonage claims to already have 55,000 lines. Since there is no competitive advantage technically in the VOIP service business, it will be interesting to see how cable companies, startups, and Bells compete with each other on marketing services and pricing. The great news is that consumers will only reap more benefits as VOIP continues to gain market share.

It feels like 1999 again when the ASP (application service provider) business model was all the rage. Why is Siebel trying this again when their most recent foray was a complete disaster? Bottom line: Salesforce.com is eating their lunch. Siebel's enterprise license revenue model is coming under real pressure as large enterprises are getting tired of spending millions of dollars upfront with no real ROI.

Could this be the return of the ASP model? In the old days, the promise and hype of many ASPs were as high as their burn rates. A number of these companies poured tens of millions of dollars into infrastructures that only had a handful of customers. The end result for most was disastrous. Despite the many failures, I am conjecturing that the ASP will be back in a BIG WAY for the following reasons: tight budgets, increased comfort level of customers to have data offsite, broadband connections allow for always-on access, and vendors with right-sized business models designed to make a profit. When and if the capital markets return, let's see how these companies perform.